April may feel far away in January, but tax day is always closer than you think. For agricultural producers, staying on top of changes to the tax code is an important part of the job. Last year, twelve states enacted legislation amending different tax provisions that affect agricultural producers for the 2023 tax year. The following is an overview of changes made in those states.
HB 1172 – Governor Sanders signed into law a new sale and compensating use tax exemption for receipts or proceeds derived from the sale of mortality composting devices. The tax exemption applies to devices “designed for the purposes of the biological decomposition and stabilization of organic matter under controlled aerobic conditions; and confines the composting material to a container or receptacle rather than a building or concrete bunker.” Compensating use taxes are imposed on tangible personal property or services when it is purchased outside of Arkansas for storage or use inside Arkansas and the out of state vendor does not collect the Arkansas use tax.
HB 7063 – Governor DeSantis signed into law a comprehensive tax bill that has several provisions related to agriculture. Florida law currently exempts many agricultural products from sales tax. The new law creates a sales tax exemption for cattle fencing used in agricultural operations on land classified as agricultural land under Florida law, including gates and electric fences. Additionally, the law prohibits counties from imposing new special assessments on agricultural lands. However, counties can continue to impose special assessments on residential structures and the curtilage, which is land immediately surrounding the residential structure.
SB 1164 – Governor DeSantis also signed into law a bill creating a new Farm Tax Exempt Agricultural Materials (TEAM) card. This card can be used by farmers to claim sales tax exemptions in lieu of a certificate or affidavit stating that the item purchased is for an exempted use. To qualify for the card, farmers must have property classified as agricultural under Florida law or implement agricultural best management practices that have been adopted by the Florida Department of Agriculture and Consumer Services. Farmers can apply for a TEAM card online or by mailing a completed form to the Florida Department of Revenue.
SEA 419 – Governor Holcomb signed into law a bill that, among other things, expands the sales tax exemption for agricultural machinery, equipment, and tools. The entire transaction involving agricultural machinery, equipment, or tools is exempt from sales tax even if the buyer uses or intends to use the property for a nonexempt purpose if all three conditions are met:
- The machinery, equipment, or tools qualifies for an exemption under IC 6-2.5-5-2 (a)-(c). There are a variety of possible exemptions, including machinery, tools, and equipment used in the “direct production, extraction, harvesting, or processing of agricultural commodities.”
- The machinery, equipment, or tools are included on the buyer’s business tangible personal property tax return.
- The machinery, equipment, or tools are predominantly used for a purpose discussed in condition number one, discussed above.
HB 330 – Governor Landry signed into law a bill that creates a new exemption from Louisiana sales and use tax for agricultural fencing material purchased by a commercial farmer. Agricultural fencing material includes non-electric and electric fencing, gates, lumber, and steel used for the purpose of fencing, power sources, grounding systems, and warning signs. A commercial farmer is “a person regularly and occupationally engaged in the commercial production of food, agricultural commodities, or agricultural products for sale; or a lessor landowner who leases an immovable for agricultural use to a person [regularly and occupationally engaged in the commercial production of food, agricultural commodities, or agricultural products for sale] and maintains a joint venture contractual relationship with the person.”
HB 584 – Governor Moore signed into law a sunset repeal and modification of the Farmers Feeding Families Act. The Farmers Feeding Families Act was set to expire on January 1, 2024, but will now continue indefinitely. The Farmers Feeding Families Act allows farmers with a farm business in Maryland to claim a tax credit against Maryland income tax for donating fresh farm products for human consumption. The new law increases the credit to one-hundred percent of the value of the donated products.
HF 1938 – Governor Walz signed a tax bill into law that, among other things, increases the Minnesota income tax credit for sales of agricultural assets to beginning and emerging farmers. An owner of agricultural assets who sells the asset to a beginning farmer may claim a credit of eight percent, increased from five percent, up to $50,000, of the fair market value of the asset. An owner of agricultural assets who sells the asset to an emerging farmer may claim a credit of twelve percent, increased from eight, up to $50,000, of the fair market value of the asset. The new law also allows owners of agricultural land to sell the land to beginning farmer family members and claim the tax credit if the sales price of the land is equal to or greater than the assessed value of the land at the date of the sale.
SB 138 – Governor Parson signed a bill into law that amends multiple sections of Missouri law including adding an income tax deduction for farmers who sell farmland to or enter into a lease, rental, or crop-share agreement with a beginning farmer. A farmer who sells the land to a beginning farmer may subtract specified percentages of the amount of capital gains received from the sale of the land from their income. A farmer who enters into a lease, rental, or crop share agreement with a beginning farmer may subtract the amount of income received from the agreement, up to $25,000, per tax year. To claim the deduction, the lease, rental, or crop-share agreement cannot exceed ten years.
LB 727 – Governor Pillen signed a tax bill into law that, among other things, expands the sales tax exemption for agricultural products to include baling wire and twine used in the baling of livestock feed or bedding. While net wrap was included in a previous sales tax exemption, the new law clarifies that net wrap used for the baling of livestock feed or bedding will qualify for the exemption.
SB 582 – The North Carolina Legislature overrode a veto by Governor Cooper to pass the North Carolina Farm Act of 2023. The law includes two tax provisions. The first provision allows farmers to include income derived from beehives, including honey, for present use value taxation. Under prior North Carolina law, income derived from honey production could not be included in the present use value. All other requirements to utilize present value taxation will still need to be met. The law also adds compost to the list of agricultural products exempt from sales tax if purchased by a qualified farmer. A qualified farmer is “a person who has an annual income from farming operations for the preceding taxable year of $10,000 or more or who has an average annual income from farming operations for the three preceding taxable years of $10,000 or more.”
HB 1168 – Governor Burgum signed into law a new income tax credit called the Twenty-First Century Manufacturing and Animal Agricultural Workforce Incentive. The new tax credit allows taxpayers who purchase “animal agricultural machinery and equipment and manufacturing machinery and equipment for the purpose of automating manufacturing or animal agricultural processes” to claim an income tax credit of fifteen percent of the cost of the equipment or machinery. The credit must be claimed in the taxable year the machinery or equipment is purchased. Under the new law, if the credit exceeds the taxpayer’s tax liability, the excess may be carried forward for the next five taxable years.
HB 4300 – Governor McMaster signed a South Carolina appropriations bill into law that includes two temporary tax provisions for agricultural producers. The first provision exempts farm fuels from sales tax for fiscal year 2023-2024. The second provision exempts from sales tax, for fiscal year 2023-2024, construction material and costs associated with handling construction material for agribusiness facilities for businesses that invest at least $100 million in South Carolina.
HB 2445 – Governor Youngkin signed into law an extension and modification of the income tax credit for farmers who donate food crops or “wholesome food” to a non-profit food bank. The new law amends the tax credit to allow farmers to claim a tax credit for donating wholesome food, defined as “food that meets all quantity standards imposed by federal, state, and local laws or regulations, including food that may not be readily marketable due to appearance, age, freshness, grade, surplus, or other condition.” The credit is increased to fifty percent of the fair market value of products donated, not to exceed $10,000 per taxable year. The credit has been extended through tax year 2027.
HB 1563 – Governor Youngkin signed into law a bill that expands agricultural property that is exempt from sales and use tax. Under the new law, internal, external, and structural components used in “indoor, closed, controlled-environment commercial agricultural facilities”, including indoor vertical farming or greenhouse facilities are exempt from sales and use taxes. Purchasers of components used in indoor facilities producing cannabis or derivatives of cannabis cannot utilize this tax exemption.
HB 1486 – Governor Youngkin also signed into law a bill expanding the types of agricultural property that localities can choose to exempt from personal property taxes. Localities may choose to exempt “motor vehicles that are used primarily for agricultural purposes, for which the owner is not required to obtain a registration certificate, license plate, and decal or pay a registration fee.” Localities may also choose to exempt “privately owned trailers that are primarily used by farmers in their farming operations for the transportation of farm animals or other farm products.”
For more state and federal agricultural tax resources, click here for NALC partner, Iowa State University, Center for Agricultural Law and Taxation’s TaxPlace Library.
For more NALC resources on taxation, click here.